All eyes on Rio

After a two-day slump for resources stocks, the market will be hoping for some solid quarterly figures - and perhaps more importantly, positive outlook commentary - from
Rio Tinto
on Thursday.

Rio won’t be reporting earnings figures alongside its production, but after Alcoa disappointed the market with its rising costs on Tuesday, any mention of production costs by Rio will be scrutinised closely.

The strong iron ore price - at $US130 a tonne - and a recent rise in BHP Billiton and Fortescue Metals shipments from Port Hedland means UBS predicts Rio will meet or exceed its annual production guidance of 200 to 215 million tonnes.

The market will also be scrutinising the production figures from the Escondida copper mine in Chile - a joint venture with BHP - after repairs to the SAG mill were completed during the September quarter.

Problems at the mill were a major drag on the mine’s output last year, and declining grades continue to be an issue.

At the moment, BHP is trading at a discount to Rio, but Rio’s greater leverage to an improvement in economic conditions via higher exposure to iron ore and aluminium has led some brokers (like UBS) to prefer Rio despite the premium.

However, Credit Suisse prefers BHP in light of Rio’s recent relative outperformance. (Rio shares rose by 27 per cent in the December quarter while BHP shares were 14 per cent higher).

“Given relatively similar pricing, we would rather own BHP given it is a higher returning business with a better balance sheet," Credit Suisse said on Wednesday.